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Even before the Alaskan Way Viaduct finally comes down, the gold rush to cash in on soaring property values in the area is in full swing.

On just one block near the waterfront: Prolific developer Martin Selig, known for building the Columbia Center, paid $44 million to buy a drab, century-old office building connected to the viaduct — so he could tear it down and build an 18-story office and apartment project in its place. And next door, an East Coast investor spent $50 million to buy and renovate another aging office building, and got local gaming company Big Fish Games to move its headquarters there. The owner then flipped the property for a $186 million payday.

Another block north, Gonzaga University, which was bequeathed a parking lot by a Spokane philanthropist in 2015, inked a deal with a national developer to put a 17-story apartment complex on the site. The university deemed the land too valuable to sell, choosing instead to get regular rent payments.

Across from the Colman Dock ferry terminal, two properties tell the story of the rising real-estate values along the old viaduct. In the foreground is the tear-down building Martin Selig bought for $44 million. Across Marion Street to the north, Big Fish Games’ headquarters are in a building that soared in value when it was renovated. (Steve Ringman / The Seattle Times)

The strip on Western Avenue where these projects are springing up isn’t incredibly desirable right now: It’s noisy, hemmed in by the hulking highway and dotted with tents. But within a few months, it will have unobstructed views of Elliott Bay, West Seattle and the Olympic Mountains, and within a few years it will be steps from a waterfront park.

The transformation of an area marked by furniture stores, parking garages and century-old buildings has already begun. In all, about two dozen major projects have launched within a quarter mile of the doomed section of the viaduct in the past five years, with more on the way.

“I think every nook and cranny, and every building that has not been fixed up, you’re going to see all those buildings get fixed up, parking lots turn into buildings,” said Murphy McCullough, executive vice president of commercial development for Skanska in Seattle. His firm is building the single-biggest project near the viaduct right now, the 2+U office tower at Second and University. “I think there’s just going to be massive demand, and folks will develop on it. It really is already happening.”

Those who live or work just east of such new buildings will typically have their views blocked. The height limit immediately on the downtown side of the viaduct is set at 100 feet near Pioneer Square and 170 feet farther north, and rises to as much as 440 feet in some spots two blocks east of the viaduct. Developers are maxing out what they can build there.

Builders say a lot of those projects would have happened regardless of the viaduct’s fate because of the general economic surge the city has experienced this decade and the scarcity of developable lots in the area. Still, there’s no doubt the viaduct’s looming removal — which has been pending for about a decade — has accelerated the rising value of the area.

Soaring property values

Overall, assessed values of commercial property within a quarter mile of the viaduct have soared 59 percent since 2011, while commercial properties in the rest of the city are up 38 percent in that span, according to an analysis of data from the King County Assessor’s Office. Median sale prices of buildings near the viaduct have also grown about twice as fast as commercial sales in the rest of the city, according to an analysis of sales records provided by CoStar. And rents for both offices and apartments have grown faster near the viaduct than in the rest of the city.

The result — as with most investment booms — is likely to be a more vibrant area with more workers, residents and shops but also with higher prices for apartments, condos and office space.

Property owners have responded to these soaring values in several ways.

Some have simply cashed out: The Selig project is on land the Jacobi family, which owns Windermere Real Estate, had held onto for more than 50 years.

Others flipped their property in a much quicker time frame: About 40 landowners have bought waterfront-area property since 2006, did no substantial work on the property and then sold it, typically within a few years. Those short-term flippers sold their property for a median of $11 million more than what they paid.

A Seattle Times analysis of CoStar data found a total of $7 billion in property sales within a quarter mile of the viaduct since 2011. That’s $3 billion more than the actual cost to tear down the viaduct, put in a replacement tunnel and build a new waterfront park and promenade. A property near the viaduct has sold once every 11 days, on average, in that span.

Others have used the opportunity to redevelop their land or renovate existing buildings.

At Second Avenue and Stewart Street, two blocks from the viaduct, Goodman Real Estate bought a plot of empty land for $9.7 million in 2012 and built the Viktoria apartment complex, reportedly at a $95 million cost. In 2015, it sold the property to Benedict Canyon Equities, a real estate investing firm, for $130 million — or a $25 million profit before transaction costs.

Hudson Pacific Properties spent $58 million in 2014 for a full block next to the viaduct on South King Street, citing the chance to build a “new office building fronting the soon to be improved Alaskan Way waterfront.” It quickly did just that and spruced up other existing buildings on the site — raising the total assessed value of the block from $25 million in 2014 to $131 million today.

The vast majority of the area near the viaduct, from the stadiums and Pioneer Square all the way up to Belltown, is now built out, so renovations or knockdowns are the main opportunity for developers. The new Hudson office, for instance, replaced a parking garage.

“Some of those buildings are very, very run down and have vacancies,” said Christian Shevchenko, first vice president of the commercial real estate brokerage CBRE. “You might have some landlords that say, ‘Finally, I can renovate this building because I can achieve the rents to support it.'”

“Transformative” changes

Ivar’s President Bob Donegan, who has been tracking changes to the area around the viaduct as a director of the Seattle Historic Waterfront Association, said the demolition of the viaduct and the forthcoming $712 million park project, due to be completed in 2023, will be “transformative.”

“I believe the viaduct is both a physical barrier and an emotional one for residents and workers downtown,” Donegan said.

He noted waterfront visitors are often loathe to travel east toward downtown, and vice versa, creating two distinct neighborhoods separated by the viaduct. A CEO new to the area recently checked out Ivar’s-controlled office space on Pier 54, a few blocks from the downtown core, and rejected it out of hand, saying “this is not downtown,” Donegan said.

Donegan experienced the anticipated frenzy firsthand when he put the Ivar’s Acres of Clams property at Pier 54 up for sale a couple years ago. While some of the seven interested parties were turned off at the idea of viaduct-related construction, others, including the eventual buyer, “saw it as an opportunity to get in before the latest run-up in value.”

The property was assessed at a little over $10 million; it sold for nearly $40 million in 2017, buoyed by projections that waterfront visitors — already up 40 percent since 2011 — were set to roughly double in the next decade.

It’s not just investors that are paying more: The cost to rent an apartment within a quarter mile of the viaduct has soared 72 percent since 2009 (compared to 63 percent in the city as a whole), boosting asking rents to about $2,400 a month. For companies, office rents since 2009 have grown 42 percent near the viaduct, compared to 31 percent in the city as a whole, according to figures run by Jared Kadry, a market analyst at CoStar.

Property owners of today will pay back a tiny bit of that equity gain through a new property tax proposed by the city for parcels near the waterfront, referred to as a LID, or local improvement district, to pay for the forthcoming waterfront park and promenade. The $160 million tax, negotiated down from $200 million after property owners objected, will hit those roughly within a quarter-mile radius of the viaduct. It translates to a one-time tax hit of $5,900 for the median commercial property owner and $1,900 for the typical condo owner.

And while the viaduct coming down will open up views, it will be replaced with what should be a busy, ground-level street that will be up to eight lanes wide in some southern points of the waterfront.

“We’re going to have an eight-lane highway next to us, so it’s not this picturesque, quiet little” area, said Greg Smith of Urban Visions, who is developing projects near the viaduct in Pioneer Square.

Plus, even those new views won’t exactly be a year-round treat — there won’t be much to look at on a typical December day.

Still, even dark clouds obscuring the mountains beats looking at a rattling chunk of concrete.

“It’s not just that it doesn’t have a view of Elliott Bay (now) — it’s that it has such a bad view,” said Shevchenko. “The power of that view in attracting (out-of-town) businesses and investors — until they come here on a nice August day, it’s hard to understand. Then they come here and say, ‘OK, I got it.’”

How we reported this story

For this story, the Seattle Times pored over thousands of property records to document the full extent of the gold rush occurring around the viaduct. We reviewed every property sale and construction permit within a quarter mile of the doomed section of highway – about a 5-minute walk to the viaduct – as well as assessed value and rent changes over time. The construction permit and assessed property value data comes from the King County Assessor, while property sales and rents were provided by CoStar, a real estate data firm.